Trade scotches supercycle fears, citing fundamentals for price rise

17 Nov 2021 | Tim Worledge

A fundamental imbalance between supply and demand is driving agricultural prices higher - not a so called investor ‘supercycle’, delegates at the Global Grain Geneva conference have been told by a panel of industry experts.

Pulled from traders, end users and government, the panel virtually and unanimously dismissed the financial phenomenon, which is defined as a sustained period of demand expansion that fuels higher prices, as the root cause of the recent spike in corn, wheat and soybean prices.

Panel chair Jeff McPike, founder of McWheat Trading, posed the question “are we in a supercycle,” and drew only partial agreement from Taras Kachka, the deputy minister of agriculture at the Ukrainian agriculture ministry.

Kachka said the recent rise in prices to multi-year highs represented the “new scale of the market,” but added that these were not sustainable bull markets for corn, soybeans and wheat.

Fellow panellist Ksenia Bolomatova of Russia-based OZK United Grain scotched talk of a supercycle however.

“We don’t see the fundamental conditions for a supercycle,” Bolomatova said, but warned that there were likely to be more price rises ahead, amid a series of supply and demand shocks that are still playing out. 

“There were fundamental reasons, the pandemic, soaring demand, a lack of harvest for some countries and the poor quality of the harvest,” Bolomatova said. 

The onset of pandemic both hit demand and affected logistics, causing a slowdown that left the trade scrambling to plug gaps in supply as demand subsequently rapidly recovered. 

On top of that, fears over the size of Brazil’s corn crop - which was reduced by over 20% between initial production estimates and harvesting figures - combined with huge wheat losses across North America amid drought conditions have drawn out prolonged support for key futures.

More recently, heavy rains in the Black Sea and Australia have also raised fears over the potential protein quality of the final crop, providing layers of support across the wheat complex.

Yves Pache, Switzerland-based General Manager at Brazilian soybean trade house Amaggi highlighted the nature of some of the rampant demand - particularly from end users like China.

“We see China driving the demand, but sometimes when we see 30 million mt of corn demand, mainly it’s for stock building,” Pache told the conference - providing support in places, but not a long term factor driving investment. 

Corn, wheat and soybean prices, as measured by contracts trading on the primary Chicago futures exchange, have all posted multi-year highs in recent months on a potent cocktail of Chinese buying and weather-based fears. 

That has come alongside surging oil and gas prices that have tripped off additional fears around the price of inputs, such as fertilisers, and sparked fears that a commodity supercycle could fire prices ever higher.